Segun Ajibola Warns CBN on Recapitalisation Risks for Banks

Prof. Segun Ajibola, former President of the Chartered Institute of Bankers of Nigeria (CIBN), has raised concerns about the potential pitfalls of the Central Bank of Nigeria’s (CBN) ongoing recapitalisation exercise. He warned that smaller banks may be compelled to enter “unholy alliances,” reminiscent of the problematic consolidations seen in the 2004 banking sector.

In an interview with ARISE NEWS, Ajibola elaborated on the risks associated with the CBN’s recapitalisation policy, which aims to strengthen the financial framework of Nigeria’s banking sector. He stressed that while the policy is necessary in light of the country’s economic growth, it poses significant challenges for banks that fail to meet the new capital requirements by the March 31, 2024, deadline.

Ajibola recounted the 2004 scenario, where sudden policy changes prompted forced mergers that often resulted in unstable partnerships. He stated, “In 2004, it was imposed policy that was never discussed and it came so suddenly that at the end of the day, marriages of inconveniences, unholy alliances, forced together strange bird fellows, and we saw the impact in 2007-2008.”

As part of the new policy, commercial banks with international authorisation must raise a minimum capital base of ₦500 billion, while those with national authorisation are required to secure ₦200 billion. Regional commercial and merchant banks have a target of ₦50 billion, and non-interest banks face requirements ranging from ₦10 billion to ₦20 billion, depending on their licence category. Currently, only 14 out of 42 banks have met these new standards, leaving 28 banks struggling to raise the necessary funds.

Despite the challenges, Ajibola views the recapitalisation as a “welcome decision.” He noted that the capital levels of banks prior to this initiative were inadequate to manage the increasing transaction volumes in Nigeria’s expanding economy. “The level of capitalisation of banks before this exercise was becoming too low to handle the volume of transactions passing through the banking sector,” he observed.

With the deadline fast approaching, Ajibola posed a critical question for the remaining banks: “What can the other banks do between now and March 31?” He highlighted the urgency of proactive measures to mitigate risks for banks that may fail to meet the new capital thresholds.

He further remarked on the importance of effective risk management, saying, “How do we manage the risk inherent in some of these 28 banks not being able to meet the minimum capitalisation level?” Ajibola recalled that during the 2004 crisis, many shareholders lost their investments because they could not align with other banks. He cautioned against repeating this mistake, urging regulators to consider alternatives to forced mergers.

Ajibola suggested that the CBN might grant extensions to struggling banks if they can present viable plans and attract potential investors. “Could they be advertised for best investors from anywhere to come in and rescue them?” he asked, emphasizing the need for innovative solutions from regulators to support the banking sector.

In closing, Ajibola warned that forced partnerships could undermine the objectives of the recapitalisation exercise. “In 2004, these alliances did not bring anything good to the banking industry,” he said. “If just to remain afloat, that kind of unholy alliance comes into play, it may pollute the entire exercise and erode all the benefits that may come.”

As Nigeria navigates this critical period in its banking sector, the insights from Ajibola serve as a crucial reminder of the need for careful planning and risk management to ensure a stable financial future.